November 15-19, 2021

What happened last week in financial markets

Inflation concerns and energy prices weighed on markets

While the North American benchmark equity indexes turned in mixed performances, the Nasdaq and S&P 500 outperformed on the strength of a tech-sector rebound. Inflation, and the prospect of higher interest rates, were front and centre for investors, and Canada reported its highest annual-inflation rate in decades. Global oil prices remained volatile.

Canada’s inflation rate rose to its highest level in two decades

According to Statistics Canada data released on Wednesday, the consumer price index (CPI) rose 4.7% in October (from a year earlier), compared to 4.4% in September (also from a year earlier). The October reading marks the highest since 2003, when the CPI last hit 4.7%. October’s levels are also the highest since the Bank of Canada first started targeting inflation in 1991. Higher prices for energy, shelter and food were significant drivers, and especially gasoline prices, which were up 5% in October and 42% from a year ago.

The 4.7% October reading was in line with economists’ median estimate, according to a Bloomberg survey; on a monthly basis, prices only rose the predicted 0.7%. Markets took some comfort in the fact that the reading wasn’t higher than expected, as was recently the case in the U.S. (bonds rallied immediately following the news). However, the report marks the seventh-straight month of inflation hovering above the 3% upper limit of the Bank of Canada’s control range. This adds to concerns that price pressures are proving more persistent than policymakers expected, and that the central bank will be forced to raise interest rates earlier than forecast to keep price levels in check.

In a Financial Times op-ed early in the week, Bank of Canada Governor Tiff Macklem said the bank is “getting closer” to raising interest rates – currently at historic lows – as the economy slowly recovers from the pandemic. While noting that substantial monetary stimulus is still needed for full recovery, Macklem reinforced that his team remains focused on its inflation target, as price pressures increase: “For the policy interest rate, our forward guidance has been clear that we will not raise interest rates until economic slack is absorbed. We are not there yet, but we are getting closer.” In its latest policy update, on October 27, the bank held its benchmark interest rate unchanged at 0.25%, but signalled that higher rates will arrive sooner than forecast. Instead of the second half of 2022, the bank now expects to begin raising interest rates in the “middle quarters” of next year.

Global oil prices fell to six-week low

With political leaders around the world looking for ways to get a handle on rising domestic consumer prices, crude prices reached a six-week low – as markets anticipated that top oil-consuming nations would release excess supply into the market. Energy supply was a topic raised in a virtual summit between U.S. President Joe Biden and Chinese President Xi Jinping early in the week; the world’s two largest oil-consuming nations showed a willingness to work together to rein in surging global energy prices, according to reports. China already released some of its crude stockpiles earlier this year, and promised to share details of a recent private sale from its reserves. Markets expect that the U.S. will soon follow suit and release supply from its Strategic Petroleum Reserve. On Friday, oil prices plunged further, on news that another deadly wave of COVID-19 infections was sending major European economies back into lockdown.


The stock and bond market*
Index Close Week YTD
S&P/TSX Composite 21,555.03 -0.98% 23.64%
Dow Jones Industrial Avg. 35,601.98 -1.38% 16.32%
S&P 500 Index 4,697.96 0.32% 25.08%
Nasdaq Composite 16,057.44 1.24% 24.59%
10-yr GoC Yield 1.66% -0.01% 0.99%
10-yr U.S. Treasury Yield 1.54% -0.04% 0.61%
WTI Crude Oil (US$/bbl) 76.10 -5.81% 56.84%
Canadian Dollar US$0.7912 -0.59% 0.74%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending November 19, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.


What’s ahead

U.S. economic data: Several reports, scheduled for release ahead of Thursday’s American Thanksgiving holiday, will offer insight into U.S. manufacturing, housing, employment levels and oil supply.

Circle these dates

  • December 8: Bank of Canada interest-rate announcement
  • December 21: Investment Update: Year-end review (weekly editions resume January 10)
  • December 27 to 28: North American markets closed for Christmas holidays

Key take-away

Trust that you’re making the right decisions. Your goals, and the investments you select as a result, are based on your personal situation and your vision for the future. That doesn’t mean you have to make the journey alone. Working with a Co-operators financial representative can help you navigate your roadmap to success.


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